Home Video Sales Fall in Q1 Despite Digital Movie Growth Spurt

Digital HD growth doesn't offset continued drop in disc revenues

The home entertainment industry has good news and bad news to share with the latest quarterly release of consumer spending totals from DEG: The Digital Entertainment Group.

The good news: The first quarter of 2014 saw strong growth in digital revenues, with consumer spending on electronic sell-through (EST) up 43% from the first quarter of 2013, thanks in large part to the growing tendency among studios to sell movies two to three weeks before they become available on disc under the Digital HD brand.

The bad news: The total amount of money generated from digital movie sales during the first three months of 2014, $330.25 million, remains small compared to the billions of dollars studios have realized each year from the sale of DVDs and Blu-ray Discs.

And on that front, disc sales – which for the last several years appeared to be stabilizing – were off 13.7%, to $1.82 billion from $2.1 billion in the first quarter of 2013.

Still, it should be noted that this year’s first quarter did not include the Easter holiday, the second-busiest shopping period of the year, which DEG says typically provides a packaged-media sales bump in the neighborhood of 25%.

Plus, the ultra-hot “Frozen” didn’t arrive on DVD until the last weeks of the first quarter on March 18.

Moreover, when all distribution channels are factored in, total consumer spending on home entertainment during the first quarter of 2014, according to DEG, was $4.53 billion, down 3.8% from the $4.71 billion consumers spent in the first quarter of 2013. By comparison, the box office value of titles that came to video during that period was off 3.5%.

Total consumer purchases on movies, TV shows and other filmed content, factoring in EST as well as DVDs and Blu-ray Discs, amounted to $2.15 billion, 7.6% less than the $2.33 billion generated by content sales in the first quarter of 2013.

Hefty gains also were realized in subscription streaming – think Netflix – with consumers shelling out an estimated $928.6 million, up 26.5% from $734.1 million in the first quarter of 2013.

Meanwhile, all forms of rental were down. Consumers in the first quarter of this year spent just $175.5 million on renting discs at traditional brick-and-mortar stores – a segment of trade that, since the demise of Blockbuster, once again consists mostly of independent stores and chains like Family Video. That’s down 33% from the first quarter of 2013. Rental at kiosks, a market segment dominated by Redbox vending machines, generated an estimated $469.5 million, down 5.5%. And disc subscription rentals, mostly from Netflix, fell nearly 17% to an estimated $224.6 million.

DEG also said sales of theatrical new releases to home entertainment jumped 83% in the first quarter compared to the same period last year, while the number of Blu-ray Disc households continues to grow, with 4.2 million additional players sold in the first three months of 2014 – a figure that includes BD set-top players as well as PS3/PS4s, Xbox Ones and HTiBs. Total household penetration of all Blu-ray compatible devices now stands at nearly 75 million U.S. homes, DEG says.

Releasing movies early on ‘digital’ is despicable and smacks of similar tactics used when the short-lived DIVX format was out. I will NEVER switch to buying movies that way, period. Disney made a HUGE mistake releasing “Frozen” only in 2D; my parents are currently on vacation in Italy and have picked up the 3D version for me there. Disc packaging has been pretty sad lately, with hole-filled “Eco-Cases”, no inserts and minimal disc labeling, plus the trend of coming in un-sealed slipcovers which many stores then ruin by sticking price tags right on. I’ve been buying many movies on a regular basis ever since the DVD format took off, but I really get the sense that most studios just don’t care as much about their product anymore. (Of course the death of stores like Tower, Virgin and Borders hasn’t helped matters either.)

The industry deserves those results. They have been anti-consumer in every manner, way, shape, and form. Want to stream DESOLATION OF SMAUG in 3D? It’s cropped (and rather severely at that). Want FROZEN 3D? American consumers had to import it from the UK! (The irony is that GRAVITY 3D and THOR 2 3D was outselling the 2D version at Wal-Mart and Amazon during the first few weeks…with GRAVITY being the fastest selling 3D movie so far. FROZEN 3D might have exceeded it…IF it were available here.) ! Want to rent HUNGER GAMES from Redbox?. The lossless audio is stripped from rental versions. Want to rent a Blu-Ray of something besides HUNGER GAMES. Redbox only carries the standard DVDs. Want extras like Director’s commentaries? Won’t find ’em on rental BDs….and so, for most people fairly new to the format, there doesn’t seem to be any added value in purchasing. Looking for that new catalog release? Won’t find it at Best Buy or other stores…heck, most won’t even know they’ve been released! The video industry seems to believe that it’s a sound practice to charge more…for less! And while it may not matter to most, it will matter to enough people to certainly affect ROI in the long run. And, as I said, the industry deserves that.

We are living in a country with a shrinking middle class and two classes emerging-the wealthy and the working poor S&P it this a surprise? Add in the higher cost to consumers with the lower cost of providi g the product and most consumers realize this is not a good deal.